Amazon.com shares hit new 52-week low

Shares of e-commerce giant Amazon.com plunged 19 percent today as three respected analysts expressed concern about revenue growth and dwindling cash reserves.

At the close of regular trading, Amazon was down $8.13 to $33.78--a new 52-week low. At one point, the shares dipped to as low as $32.50. Volume reached 51.7 million shares, making it the most actively traded stock of the day.

Among the news that troubled investors was a dire report by Ravi Suria, a convertible debt analyst at Lehman Brothers.

Amazon's credit is "extremely weak and deteriorating," Suria wrote, adding that investors should be wary of the company's bonds.

"We believe that the combination of negative cash flow, poor working capital management, and high debt load in a hyper-competitive environment will put the company under extremely high risk," Suria wrote.

The pessimism that swamped Amazon's shares spilled over into other Net giants. Shares of online auction company eBay were down $4.31 to $53.88, Priceline.com shares dipped $3.50 to $41.81, and Yahoo shed $6.38 to $125.31. All are well off their 52-week highs.

The carnage is the latest example of Wall Street's aversion toward profitless "new economy" stocks. Just last year, Time magazine named Amazon chief executive Jeff Bezos its "Person of the Year," and many e-commerce stocks were trading at record highs.

But this year has read more like a Stephen King novel than a glowing magazine profile for Bezos and his Seattle-based company.

With today's decline, Amazon shares have plunged 70 percent since reaching a 12-month high of $113 on Dec. 9. During that period, the company's market capitalization has also sunk, from $60 billion to $11.9 billion.

Amazon announced its first major layoffs in January. In addition, the company's Alexa Internet unit is the subject of both an inquiry by the Federal Trade Commission and two lawsuits over alleged privacy violations.

Amazon has also drawn flak for its recent patent on its affiliates program, with critics charging that the company would impede Web business by patenting obvious--and widely used--technology.

Amazon itself is the subject of a patent suit by Intouch, which charges that the e-commerce giant has violated a patent on a method to preview prerecorded music samples over the Internet.

In addition to Suria's report, investors were spooked today by comments from two other well-known analysts.

According to Reuters, Morgan Stanley's market-moving analyst Mary Meeker said she sees "no upside" and "modest downside" to her second- and third-quarter revenue estimates for Amazon and sees no catalysts for the stock "until they make or break the December quarter."

In a recent report, Merrill Lynch analyst Henry Blodget also said he does not see much "upside to our second-quarter revenue estimate of $585 million." He attributed this to a "slowdown in general consumer spending as the economy begins to slow" and "a slowdown in the consumer Internet industry."

At least one analyst disputed Suria's conclusions and defended Amazon. "With respect to a weak balance sheet, poor working capital management, and negative operating cash flow, (Suria) got this numbers dead wrong," J.P. Morgan analyst Tom Wyman said in an interview.

"The combination of negative cash flow, poor working capital management and high debt load...will put (Amazon) under extremely high risk."

-Lehman Brothers analyst Ravi Suria

Suria "should go down the hall and talk to the e-tailing analyst and see how an Internet e-tailing model works," he said.

To fund its continuing operations, Amazon has racked up about $2.1 billion in long-term debt. Much of that came from two different convertible bond offerings. Last year, Amazon raised about $1.25 billion in debt. Earlier this year, the company raised about 690 million euros ($646 million) in a separate debt issue.

As with most convertible bonds, Amazon has the right to call the notes and force investors to convert their notes for shares of its stock--if it maintains a certain stock price for a certain amount of time. For its U.S. debt, Amazon can call the 10-year notes for stock if the company's stock trades above $117.04 per share for 20 out of 30 consecutive trading days.

When Amazon issued the debt, the market for e-commerce stocks was flying, and it looked like the company might be able to call the notes right away. That no longer seems to be the case. In the meantime, Amazon will have to make semiannual debt payments. The company made its first $29.7 million debt payment on its U.S. note last August.

Financial analyst Jeetil Patel of Deutsche Bank Alex Brown said Amazon's debt is not something investors should worry about. Despite the debt, Amazon has enough cash reserves--about $1.1 billion--to last until it reaches profitability, he said.

What's hurting Amazon's stock is that the company is beginning to look more and more like a traditional retailer, Patel said. During the first quarter, Amazon experienced its first sequential quarterly decline in sales, one of the first indications that it will be subject to the same seasonal demands as a Wal-Mart or a Sears.

During the fourth quarter last year, Amazon took a $39 million charge in inventory-related experiences, meaning that despite its high-tech facade, the company could face the same inventory pressures that haunt offline retailers.

Investors who bought Amazon shares because they thought it was a high-growth, high-margin tech stock have been looking for an excuse to get out of it now that it is beginning to look more like a slow-growth, low-margin retailer, Patel said.

"If the company looks and acts like a retailer, albeit on the Internet, then its valuation is at a risk," Patel said. "We're seeing a shift from tech investors to retail investors."